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MBS Day Ahead: MBS Prices Roll; Here Comes The Fed

Posted To: MBS Commentary

The word "roll" has a few meanings around here. For those who participate in MBS markets at a higher level, "dollar rolls" are actual tradeable positions that involve selling one delivery month of MBS to buy a future delivery month (or vice versa). Colloquially, however, we also use the term simply to refer to the monthly settlement process in MBS. Reason being: since the price of a dollar roll is the same as the gap between this month's MBS and the next, it gives us a quick way to refer to the drop in prices that shows up on charts when we shift our point of view to a new delivery month. Confused yet? Don't be. This is as simple as the concept of "time value of money." For instance, let's say I have 2 and only 2 MBS coupons to sell you and you have…(read more)

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